Download Accounting Information Systems An Accounting Information System

Core Concepts of
ACCOUNTING INFORMATION SYSTEMS
Moscove, Simkin & Bagranoff
Developed by:
S. Bhattacharya, Ph.D.
Florida Atlantic University
John Wiley & Sons, Inc.
Chapter 1
Accounting Information Systems and
the Accountant
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Introduction
What are Accounting Information Systems?
Accounting in the Information Age
Careers in Accounting Information Systems
Chapter Quotation
• “The accounting industry has always been paperdriven. Now it is becoming technology driven.”
Maureen Link, “3G Technology Will Change the Way
You Work,” Pennsylvania CPA Journal (Spring 2003),
p. 19.
• “The American Institute of Certified Public
Accountants (AICPA) has projected that two of the top
technology issues facing the accounting profession
during the first several years of the 21st century are:
– Information security and controls within
information systems, and
– Electronic commerce
The Information Age
• In the information age, fewer workers are
making products, and a large segment of the
employee population is involved in producing,
analyzing, and distributing information.
• Knowledge workers comprise much of the
labor force.
• A major contributor to the information
age is the Internet.
An Information System
• A System is an entity consisting of interacting
parts or components that are attempt to achieve
one or more goals.
• An Information system is a set of interrelated
subsystems that work together to collect, process,
store, transform, and distribute information for
planning, decision making, and control.
• Firms depend on information systems in order to
stay competitive.
AIS: At the Intersection of
Accounting and IS
Accounting
Accounting
Information
Systems
Information
Systems
Accounting Information Systems
• An Accounting Information System (AIS)
is the information subsystem within an
organization that accumulates information
from the entity’s various subsystems and
communicates it to the organization’s
information processing subsystem.
• The AIS today should be an enterprise-wide
information system, focused on business
processes.
An Accounting Information
System
Inputs: Data/Information from
Internal/External sources
Data
Repository/
Files,
Databases,
Etc.
Processes: Sort, Organize,
Calculate
Outputs: Information for Internal/
External Decision Makers
Data versus Information
• Data are raw facts about events
that have no organization or
meaning.
• Information is data that have
been processed and is
meaningful and useful to users.
MIS versus AIS
• Historically, a Management Information
System provided financial and nonfinancial
information to internal users (management).
• The Accounting Information System provided
financial information to both external and
internal users.
• Now, the two systems overlap and
provide much of the same
information focusing on
business processes.
Accounting in the Information Age
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Financial Accounting
Managerial Accounting
Auditing
Taxation
Why Do Accounting
Information Systems Fail?
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Hardware problems
Software problems
People problems
Data problems
Processing procedures
What’s New in AIS?
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Countering terrorism
New accounting scandals
The Sarbanes-Oxley Act of 2002
The Jobs & Growth Tax Relief
Reconciliation Act of 2003
• WI-FI Technology
Examples of Recent Accounting
Scandals
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Enron 2001
Imclone 2001
Arthur Andersen 2001
Merrill Lynch 2002
Tyco 2002
Adelphia 2002
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Global Crossing 2002
Parmalat 2003
NYSE 2003
WorldCom 2003
HealthSouth 2003
Taxonomy of Accounting
Information Systems
An Accounting Information System
Financial Accounting
Cost Accounting
Managerial Accounting
Budgeting
Systems Study
Financial Accounting
• The objective of financial accounting is to provide
relevant information to individuals and groups
outside an organization’s boundaries.
• Users include investors, tax agencies, and creditors.
• Objectives achieved through preparation of
financial statements.
The Financial Accounting
Information System
• Inputs are transactions measured in monetary
units.
• The audit trail enables information users to
follow the flow of data through the system.
• Audit trail parallels the accounting cycle, which
begins with a transaction and ends with
producing financial statements and closing
temporary accounts.
• A good audit trail permits managers to follow
source document data from input through
processing to the data’s location on an output
report (and vice versa).
A Financial Accounting Audit
Trail
Input
Source Documents
Journals
Transaction
Processing
Ledgers
Trial Balance
Output
Financial Starements
and other external
reports
Files of Source Documents
Criticisms of the Financial
Accounting Information System
• Lack of timeliness and usefulness
• Too much aggregation of information
– Segment reporting concerns reporting of
disaggregated information.
• Information overload
Managerial Accounting
• Objective of Managerial Accounting is to
provide relevant information to a company’s
managers, who are internal parties (or users).
• Three components of managerial accounting
are:
• Cost Accounting
• Budgeting
• Systems study
Features of Managerial
Accounting
• Providing accounting information for internal
parties, rather than external.
• Information is mostly forward-looking.
• Not regulated by GAAP and not mandatory to
prepare.
• Reports include both non-monetary and
financial data.
• Influenced by many business and non-business
disciplines.
• Information is flexible and frequently involves
non-routine reporting.
Cost Accounting
• Cost accounting assists managers in
functions related to an organization’s
acquisition, processing, distribution and
selling activities.
• Activity-based costing systems assign
overhead to products based on cost drivers.
• Responsibility accounting systems help
managers trace unfavorable performance
to the department or individual that caused
the inefficiencies.
Cost Accounting
• Performance measures are being used for
long-term profitability and to encourage
certain employee behavior.
• The balance scorecard approach uses
performance measurements in
four categories to evaluate and
promote certain activities and
behaviors.
Budgeting
• A budget is a financial projection for the
future and thus is a valuable managerial
planning aid.
• Budgets are used for managerial control.
Actual results are compared to budgeted
results.
• The budgetary function in the AIS affects
all the subsystems within an organization.
Systems Study
• Because of managerial accountants’ ability to
understand internal financial systems,
organizations may hire them to perform
system studies.
• Many systems studies use the team approach.
– The team may include marketing specialists,
computer experts, production managers, engineers
and industrial psychologists.
Steps in Systems Study
• Planning
– Develop strategic plans
• Analysis
– Review current system
• Design
– Design new system
• Implementation and Follow-up
– Put the new system in place and continue to
monitor it
Auditing
• Auditing has become a mature industry.
• Accountants are focusing on additional
assurance services in arenas other than
financial reporting.
• CPA WebTrust is a service that provides
assurance that a company engaged in
electronic commerce can provide the goods
and services purchased as promised.
Assurance Services identified by the
AICPA Special Committee
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Risk Assessment
Business Performance Measurement
Information Systems Reliability
Electronic Commerce
Health Care Performance Measurement
Eldercare Plus
Taxation
• Information technology enables the
automation of income tax returns.
• Electronic tax libraries and on-line tax
services make it easier for accountants to
perform tax research.
Careers in Accounting
Information Systems
• Systems consultants provide help with
issues concerning information systems.
– Designing information systems, selecting
hardware and software, or reengineering
business processes.
• Value-added resellers (VARs) sell a
certain software program and provide
consulting services to companies.
Careers in Accounting
Information Systems
• Information systems auditors concern themselves
with analyzing risks associated with
computerized information systems.
– Professional hackers can show organizations ways that
their computer system could be penetrated.
• Information systems auditors can be licensed as
Certified Information Systems Auditors (CISA).
– Information Systems Audit and Control Association
(ISACA) certifies a CISA.
Copyright
Copyright 2005 John Wiley & Sons, Inc. All rights reserved.
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Chapter 1